14 May 1997 External T.I. 9629635 - LOOK-THROUGH PROVISION IN ARTICLE 13 U.K. TREATY

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether subparagraph 7(b) of Article 13 of the Canada -U.K. Income Tax Convention should be applied on a look-through basis for purposes of subparagraph 5(a) of Article 13.

Position:

Yes.

Reasons:

As paragraph 5 of Article 13 clearly provides for a look-through, subparagraph 7(b) exception should also be on a look-through basis. Note that property referred to in paragraph 4 of Article 13 is distinguished from immovable property. (See E9528211, E3M04361, 940304).

						962963
XXXXXXXXXX						J. Stalker

Attention: XXXXXXXXXX

May 14, 1997

Dear Sirs:

Re: Article 13 of the Canada-U.K. Convention (the "Convention")

We are writing in response to your letter of September 5, 1996 in respect of paragraphs 5 and 7 of Article 13 of the Convention.

You have presented a scenario where a U.K. corporation ("UK Co") owns shares in the capital of a Canadian corporation ("Parent Co") which, in turn, owns all the shares of other Canadian companies (collectively, "Subsidiary Co"). Subsidiary Co carries on a business in Canada and, in the course of carrying on that business, uses immovable property situated in Canada.

Parent Co's assets consist primarily of its shares of Subsidiary Co and, as a result, the value of the shares of Parent Co owned by UK Co is, in part, indirectly derived from the immovable property situated in Canada owned by Subsidiary Co. Parent Co does not carry on the business of Subsidiary Co and, as a result, does not use the immovable property owned by Subsidiary Co.

You have asked whether the exception to the term "immovable property" found in subparagraph 7(b) of Article 13 of the Convention should be applied on a "look-through basis" for the purposes of subparagraph 5(a) of that Article. It is our position that the exception to the term "immovable property" in subparagraph 7(b) should be applied on a look-through basis so that property that is not "immovable property" pursuant to the exception in subparagraph 7(b) would not be taken into account in determining whether shares derive their value or the greater part of their value directly or indirectly from immovable property pursuant to subparagraph 5(a) of Article 13.

However, it should be noted that in applying subparagraph 5(a) of Article 13 of the Convention, consideration has to be given to property referred to in paragraph 4 of Article 13 of the Convention, whether or not such property is property in which the business was carried on.

The above comments represent our general views with respect to the subject matter of your letter. These comments do not constitute an advance income tax ruling and therefore, as described in paragraph 22 of Information Circular 70-6R3, are not binding on the Department.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch